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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The significant components of deferred tax assets and liabilities included in the consolidated balance sheets at December 31 were as follows:
(Dollars in millions)At December 31,
20222021
Deferred tax assets:  
Unearned premiums$148 $131 
Loss and loss expense reserves106 92 
Net operating loss on international earnings28 34 
Deferred international earnings16 31 
Other55 50 
Deferred tax assets before valuation allowance353 338 
Valuation allowance for international operations31 53 
Deferred tax assets net of valuation allowance322 285 
Deferred tax liabilities:  
Investment gains and other, net 992 1,684 
Deferred acquisition costs171 155 
Life policy reserves112 116 
Investments31 38 
Other61 36 
Total gross deferred tax liabilities1,367 2,029 
Net deferred income tax liability$1,045 $1,744 
 
Deferred tax assets and liabilities reflect temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount recognized for tax purposes.

Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred tax assets will not be realized. After considering all positive and negative evidence of taxable income in the carryback and carryforward periods as permitted by law, we believe it is more likely than not that all of the deferred tax assets on our U.S. domestic operations will be realized. As a result, we have no valuation allowance at December 31, 2022 and 2021, for our U.S. domestic operations. As more fully discussed below, we do carry a valuation allowance on the deferred tax assets related to Cincinnati Global.

For financial reporting purposes, income (loss) before income taxes includes the following components:
(Dollars in millions)For the years ended December 31,
202220212020
United States$(718)$3,644 $1,521 
International25 26 (22)
Total income (loss) before income taxes$(693)$3,670 $1,499 
The provision (benefit) for income taxes consists of:
(Dollars in millions)For the years ended December 31,
202220212020
Provision (benefit) for income taxes:
Current – United States federal$148 $248 $147 
            International— (1)— 
Total current148 247 147 
Deferred – United States federal(355)477 136 
                     International— — — 
Total deferred(355)477 136 
Total provision (benefit) for income taxes$(207)$724 $283 

The differences between the 21% statutory federal income tax rate and our effective income tax rate were as follows:
(Dollars in millions)Years ended December 31,
202220212020
Tax at statutory rate:$(146)21.0 %$771 21.0 %$315 21.0 %
Increase (decrease) resulting from:     
Tax-exempt income from municipal bonds(20)2.9 (20)(0.5)(20)(1.3)
Dividend received exclusion(21)3.0 (20)(0.5)(17)(1.1)
Release of unrecognized tax benefit(34)4.9 — — — — 
Other14 (1.9)(7)(0.3)5 0.3 
Provision (benefit) for income taxes$(207)29.9 %$724 19.7 %$283 18.9 %
 
The provision (benefit) for federal income taxes is based upon the filing of a consolidated income tax return for the company and its domestic subsidiaries within the United States. At December 31, 2022 and 2021, we had no operating or capital loss carryforwards in the United States. As more fully discussed below, Cincinnati Global, has operating loss carryforwards in the United Kingdom.

In response to the COVID-19 pandemic, various stimulus legislation was enacted in 2021 and 2020. We have evaluated the pandemic-related legislation enacted in 2021 and 2020 and the result of such legislation was immaterial to our financial statements.

Enactment of the Inflation Reduction Act of 2022
The Inflation Reduction Act of 2022 (Tax Act) was enacted on August 16, 2022. Along with other changes, the Tax Act created a new corporate alternative minimum tax (AMT) for certain corporations based on 15% of adjusted financial statement income for the taxable year. Even though we expect to be an applicable corporation for the purposes of the AMT in 2023, we do not expect the enactment of the Tax Act to have a material impact on our financial statements. In addition, the Tax Act imposes a 1% excise tax on corporate stock repurchases. The effective date of these two provisions was January 1, 2023.
Unrecognized Tax Benefits
During 2022, we received favorable guidance from the Internal Revenue Service (IRS) supporting our tax position related to our unrecognized tax benefit set up in 2018. As a result of this guidance, we released our $34 million gross unrecognized tax benefit liability at December 31, 2022. The $34 million release is recognized as an additional income tax benefit and is shown separately in our effective income tax rate reconciliation. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:
(Dollars in millions)Years ended December 31,
202220212020
Gross unrecognized tax benefits, January 1$34 $34 $34 
Gross increase in prior year positions— — — 
Gross decrease in prior year positions(34)— — 
Gross increase in current year positions— — — 
Settlements with tax authorities— — — 
Lapse of statute of limitations— — — 
Gross unrecognized tax benefits, December 31$— $34 $34 
During 2022, the Congressional Joint Committee on Taxation completed its review of our 2017 tax return and related carryback claims with no change to our returns as filed. In January 2023, the IRS completed their review of our 2018 tax return with an immaterial decrease to our tax liability as originally filed.

The statute of limitations for federal tax purposes has closed for tax years ended December 31, 2016 and earlier. However, as a result of certain net operating loss carryback claims we have filed related to the tax year ended December 31, 2017, the IRS has a limited ability to assess tax for the 2015 tax year. During 2022, we held an opening conference with the IRS to begin their audit of our 2021 and 2020 tax years.

In addition to our IRS filings, we file income tax returns with immaterial amounts in various state jurisdictions and record these amounts in our provision for income taxes for both current and deferred taxes. The statute of limitations for state income tax purposes has closed for tax years ended December 31, 2018 and earlier.

Cincinnati Global operates in the United Kingdom and as such, is subject to tax in that jurisdiction. The statute of limitations for tax return review by His Majesty’s Revenue and Customs (HMRC) has closed for tax years ended December 31, 2020 and earlier. There are currently no tax returns under review by HMRC.

Income taxes paid in our consolidated statements of cash flows are shown net of refunds received. We received no refunds in 2022, 2021 or 2020.

Cincinnati Global
Cincinnati Global's operating results for the year ended December 31, 2022, decreased their net deferred assets by $22 million with an offsetting decrease of $22 million to their valuation allowance. Cincinnati Global had a net deferred tax asset of $31 million and an offsetting valuation allowance of $31 million at December 31, 2022.

Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred tax assets will not be realized. After considering all positive and negative evidence, we believe it was appropriate to set up a valuation allowance for purposes of our opening Cincinnati Global balance sheet and is appropriate to carry a valuation allowance at December 31, 2022, 2021 and 2020.
The following is a tabular reconciliation of the total amounts of our Cincinnati Global valuation allowance:
(Dollars in millions)Years ended December 31,
202220212020
Valuation allowance, January 1$53 $56 $41 
Current year operations(22)(3)15 
Valuation allowance, December 31$31 $53 $56 

At December 31, 2022 and 2021, Cincinnati Global had operating loss carryforwards in the United States of $5 million and $8 million and in the United Kingdom of $109 million and $130 million, respectively. These Cincinnati Global losses can only be utilized within the Cincinnati Global group in both the United States and in the United Kingdom and cannot offset the income of our domestic operations in the United States.